Contractors under umbrella arrangements could be unknowingly involved in tax avoidance, warns HMRC

Contractors and agency workers being paid through an umbrella arrangement which claims to increase take-home pay could be involved in tax avoidance, HM Revenue & Customs (HMRC) has warned.

The warning comes as the regulator publishes new guidance aimed at raising awareness around umbrella arrangements, which can sometimes double up as a tax avoidance scheme.

According to HMRC, it is aware of schemes that claim to “increase take-home pay” by paying less Income Tax and National Insurance Contributions. In return, the scheme providers take up to 10 per cent of contractor income as fees.

However, those involved in such schemes may unknowingly be involved in a tax avoidance, resulting in enforcement action and penalties.

“You could end up paying much more than you were trying to avoid in the first place. If something looks too good to be true, then it almost certainly is,” said HMRC.

The regulator is now warning taxpayers to look carefully into advertised umbrella arrangements and speak to a professional before handing over their income.

“You should do your own research to find out more about the adviser and the scheme on offer before you sign up to it,” said HMRC.

The guidance adds: “If you sign up to a scheme that does not work, you may end up with a higher tax bill than expected at first.”

If you have been offered an invitation into an umbrella scheme, or are already part of one, get in touch with our expert team for advice today.